The California Health Facilities Financing Authority Act authorizes the California Health Facilities Financing Authority to, among other things, make loans from the continuously appropriated California Health Facilities Financing Authority Fund to participating health institutions, as defined, for financing or refinancing the acquisition, construction, or remodeling of health facilities.

This bill would create the Distressed Hospital Loan Program, until January 1, 2032, for the purpose of providing loans to not-for-profit hospitals and public hospitals, as defined, in significant financial distress distress, or to governmental entities representing a closed hospital to prevent the closure or facilitate the reopening of a closed hospital. The bill would require, subject to an appropriation by the Legislature, the Department of Health Care Access and Information to administer the program and would require the department to enter into an interagency agreement with the authority to implement the program. The bill would require the department, in collaboration with the State Department of Health Care Services, the Department of Managed Health Care, and the State Department of Public Health, to develop a methodology to evaluate an at-risk hospitals potential eligibility for state assistance from the program, as specified. Notwithstanding that methodology, the bill would deem a hospital applying for aid to be immediately eligible for state assistance from the program if the hospital has 90 or fewer days cash on hand and has experienced a negative operating margin over the preceding 12 months. The bill would require a hospital or a closed hospital to provide the authority and the department with financial information, in a format determined by the authority, demonstrating the hospitals need for assistance due to financial hardship. The bill would additionally require that the department, in consultation with the authority, develop a loan forgiveness application and approval process, as specified. The bill would specify that the authority and the department may implement these provisions by information notices or other similar instructions, without taking any further regulatory action.

This bill would create the Distressed Hospital Loan Program Fund, a continuously appropriated fund, for use by the department and the authority to administer the loan program, as specified. The bill would authorize both the authority and the department to recover administrative costs from the fund, as specified. By creating a continuously appropriated fund, the bill would make an appropriation.

Existing law generally requires a health care facility to report specified data to the department, including total inpatient and outpatient revenues by payer, including Medicare and Medi-Cal. Existing law requires the department to adopt regulations regarding the identification and reporting of charity care services, and specifies various obligations to provide hard copies of hospital data reports submitted pursuant to these provisions.

This bill would additionally require data for total inpatient and outpatient revenues by payer to include commercial coverage payers. The bill would require a hospital subject to these data reporting requirements to submit a balance sheet detailing the assets, liabilities, and net worth at the end of the quarter as specified by the department. The bill would also remove the provisions regarding regulations related to charity care services and obligations to provide hard copies of hospital data reports.

This bill would declare that it is to take effect immediately as an urgency statute.

The California Health Facilities Financing Authority Act authorizes the California Health Facilities Financing Authority to, among other things, make loans from the continuously appropriated California Health Facilities Financing Authority Fund to participating health institutions, as defined, for financing or refinancing the acquisition, construction, or remodeling of health facilities.

This bill would create the Distressed Hospital Loan Program, until January 1, 2032, for the purpose of providing loans to not-for-profit hospitals and public hospitals, as defined, in significant financial distress or to governmental entities representing a closed hospital to prevent the closure or facilitate the reopening of a closed hospital. The bill would require, subject to an appropriation by the Legislature, the Department of Health Care Access and Information to administer the program and would require the department to enter into an interagency agreement with the authority to implement this the program. The bill would require the department, in collaboration with the State Department of Health Care Services, the Department of Managed Health Care, and the State Department of Public Health, to develop a methodology to evaluate an at-risk hospitals potential eligibility for state assistance from the program, as specified. Notwithstanding that methodology, the bill would deem a hospital applying for aid to be immediately eligible for state assistance from the program if the hospital has 90 or fewer days cash on hand and has experienced a negative operating margin over the preceding 12 months. The bill would require a hospital or a closed hospital to provide the authority and the department with financial information, in a format determined by the authority, demonstrating the hospitals need for assistance due to financial hardship. The bill would additionally require that the department, in consultation with the authority, develop a loan forgiveness application and approval process, as specified. The bill would specify that the authority and the department may implement these provisions by information notices or other similar instructions, without taking any further regulatory action.

This bill would create the Distressed Hospital Loan Program Fund, a continuously appropriated fund, for use by the department and the authority to administer the loan program, as specified. The bill would authorize both the authority and the department to recover administrative costs from the fund, as specified. By creating a continuously appropriated fund, the bill would make an appropriation.

Existing law generally requires a health care facility to report specified data to the department, including total inpatient and outpatient revenues by payer, including Medicare and Medi-Cal. Existing law requires the department to adopt regulations regarding the identification and reporting of charity care services, and specifies various obligations to provide hard copies of hospital data reports submitted pursuant to these provisions.

This bill would additionally require data for total inpatient and outpatient revenues by payer to include commercial coverage payers. The bill would require a hospital subject to these data reporting requirements to submit a balance sheet detailing the assets, liabilities, and net worth at the end of the quarter as specified by the department. The bill would also remove the provisions regarding regulations related to charity care services and obligations to provide hard copies of hospital data reports.

The California Health Facilities Financing Authority Act authorizes the California Health Facilities Financing Authority to, among other things, make loans from the continuously appropriated California Health Facilities Financing Authority Fund to participating health institutions, as defined, for financing or refinancing the acquisition, construction, or remodeling of health facilities.

Existing law requires a public officer who is a minor to have the rights and liabilities of an adult, both civil and criminal, with regard to that public officers official duties, and a candidate for nomination or election to public office who is a minor to have the rights and liabilities of an adult, both civil and criminal, with regard to that candidates activities as a candidate.

This bill would make a nonsubstantive change to these provisions.

ASSEMBLY THIRD READING

ATR Bill Id:AB 412

Author:(Soria, et al.)

As Amended Ver:April 24, 2023

2/3 vote

SUMMARY

Establishes the Distressed Hospital Loan Program (DHLP), until January 1, 2032, which will provide interest free cashflow loans to not-for-profit hospitals and public hospitals, as defined, and in significant financial distress, or to governmental entities representing a closed hospital. Requires the Department of Health Care Access and Information (HCAI) to administer the DHLP and to enter into an interagency agreement with the California Health Facilities Financing Authority (CHFFA) to implement the DHLP.

Major Provisions

COMMENTS

CHFFA. This bill requires HCAI and CHFFA to develop a loan program for distressed hospitals. Currently CHFFA administers various loan programs for public and non-profit hospitals. In order to meet the requirements for CHFFA financing, an institution must be a public hospital, a private non-profit corporation, or an association authorized by the laws of California to provide or operate a health facility and undertake the financing or refinancing of a project. Generally, non-profit, licensed health facilities in the State of California including adult day health centers, community clinics, developmentally disabled centers, and drug and alcohol rehabilitation centers are eligible for financing. Applicants must be approved by a resolution of the CHFFA Members at a regularly scheduled public meeting. In addition to initial eligibility, CHFFA requires borrowers to comply with its Bond Issuance Guidelines per bond rating category and provide loan security provisions and bond covenants that correspond with its rating. Savings resulting from issuance of tax-exempt bonds for borrowers must be transferred to the consuming public via lower or contained costs for delivery of health services.

California Hospital Association (CHA) Budget request. CHA is requesting a $1.5 billion relief package for hospitals. The CHA request notes that the state has not increased Medi-Cal rates paid to hospitals for over a decade and even prior to that, Medi-Cal base reimbursement did not cover the cost of providing care to this population. CHA states that California pays just 74 cents on the dollar to care for Medi-Cal patients. CHA notes that Medi-Cal enrollment has grown from 21% to nearly 40% of the population, and costs have spiked with a 16% increase in labor, a 41% increase in pharmaceutical costs, and a 19% jump in medical supplies. This cost growth coincides with the pandemic, which has led to a loss of more than $12 billion for hospitals. Funds are proposed to be disbursed based on each recipient hospital’s Medi-Cal utilization, stating that it targets funding to hospitals that provide a greater number of Medi-Cal services and will give relief to hospitals most impacted by the state’s systemic underfunding of Medi-Cal. However, no data has been provided to show the extent of financial need for each hospital in California, not the amount of COVID-19 relief funds received, or exactly how hospitals Quality Assurance Feed money is spent.

Recent hospital closures. As the chart below illustrates, between 2006 and 2023, 10 hospitals in California have closed. However, not all closures were the result of financial problems, for example, Adventist Health Feather River closed in 2018 as a result of the Camp Fire.

Distressed hospitals. According the Center for Healthcare Quality and Payment Reform, six rural hospitals in California are at risk of closing, although the center does not release the names of at-risk hospitals. However, as reported in an April 6, 2023 CalMatters article, several hospitals have openly discussed their issues and attributed reductions in services to their finances. Hazel Hawkins, located in Hollister, and Mad River Community Hospital in Arcata have both suspended their home health services programs; Kaweah Health Medical Center in Visalia has laid off at least 130 employees; El Centro Regional Medical Center in Imperial County cut its maternity ward, forcing local families to travel about 25 minutes to the only other hospital in the county.

Medi-Cal payments to hospitals. Medi-Cal has two methods for making payments to hospitals: fee-for-service and managed care. Hospital services for Medi-Cal beneficiaries not enrolled in a managed care health plan are paid for directly by the state. Prior to 2013 payments were made on confidentially negotiated rates through a state agency known as the California Medical Assistance Commission (CMAC), which were increased annually, however they were not based on patient acuity. In 2012, CMAC was closed and the hospitals and the state agreed to a medical acuity-based payment much like the Medicare diagnosis-related group or DRG. The payments have not been increased in over a decade. Managed care plans are paid a flat per-member per-month fee, or capitated rate (in which a provider or group of providers receives a fixed amount per person or enrollee, regardless of the treatment required), by the Department of Health Care Services. Plans then negotiate payment rates with contracted providers. Some providers take full or partial risk in their contracts with health plans.

This bill proposes to use Medi-Cal reimbursements due to hospitals as the security for the cashflow loans, not to exceed 20% of the hospitals Medi-Cal payments until the loan amount has been satisfied.

According to the Author

In the Central Valley district she represents, Madera Community Hospital recently closed its doors shutting down the only hospital for Madera County’s roughly 150,000 residents. The author states that now, hardworking farmworkers and many other community members, one-fifth of whom live in poverty, must travel 20 miles or more to receive emergency care and other hospital services. The author notes that Madera Community Hospital has been vital to protecting public health in the region and was the first to treat a COVID-19 patient in the Central Valley. Yet, without emergency financial assistance, the hospital was unfortunately forced to close, severely impacting local access to health care and displacing the medical workforce. The author contends that this bill will help Madera and other communities facing similar circumstances ensure that healthcare facilities remain open by establishing a new emergency loan program within the State Treasurer’s Office to assist hospitals that are at a high risk of closing or have recently closed and are attempting to re-open. The author concludes that California has made significant strides in recent years to ensure healthcare coverage is available to all residents, regardless of their residency status or income, and that we now must ensure healthcare facilities remain open to actually provide that lifesaving care.

Arguments in Support

CHA supports this bill and states that it addresses the immediate and short-term needs for a small group of hospitals that are on the edge of a financial cliff and facing the difficult choice of service reductions or bankruptcy. However, additional and rapid financial help is needed as dozens more hospitals are at risk of closure and all California hospitals are financially threatened. CHA states that is why the Legislature must also support an immediate lifeline to protect care for Medi-Cal patients throughout the state, not only in those communities where the loss of services is imminent.

CHA notes that Medi-Cal has grown to cover nearly 40% of all Californians, yet longstanding systemic underfunding of the program persists. Medi-Cal rates for hospital services have not increased in over a decade and California today pays just 74 cents for every dollar it costs to care for Medi-Cal patients. CHA contends that while reimbursement has remained stagnant, labor expenses have spiked 16% since 2019, pharmaceutical costs have grown by 41%, and the cost of medical supplies has jumped 19%. Hospitals whose patients rely on these programs for health coverage cannot sustain these daily shortfalls, especially having already depleted their reserves to cover $12 billion in COVID-19-driven losses, as well as surging labor, pharmaceutical, and operating expenses. CHA concludes that these government shortfalls do a disservice to people living in the state’s most-challenged communities, where access to care is already difficult and would be simply out of reach if this systemic problem is not addressed.

Concerns

Service Employees International Union California (SEIU) states that hospitals and their workforces are critical to the health of our communities, and that SEIU has historically supported efforts to address potential hospital closures, such as the creation of a new health care district in Watsonville. By creating a health care district, the public is able to see transparency in the hospital’s operations and finances and hold the hospital accountable for meeting the care needs of the community. Although the creation of a health care district may not be right for every community, providing loans or grants to a local hospital that is in financial distress should include similar principles of transparency, accountability, and oversight. SEIU states that as written, this bill would give additional responsibilities to HCAI, including:

1. Defining when a hospital is considered to be “in financial distress;”
2. Creating a methodology that will also be used for “identification and ongoing monitoring of hospitals at risk of financial distress;”
3. Determining “network adequacy and service provision requirements” for the duration of any loans issued from the Fund; and,
4. Determining criteria under which some or all of the loans would be forgiven – thereby converting some or all of the loans into grants.

SEIU states that these important responsibilities should come with appropriate guardrails placed by the legislature and opportunities for the public to engage in the process of developing these new definitions and methodologies. Ensuring that the bill includes appropriate public process and transparency is particularly important, as HCAI would not be required to issue regulations in order to create these new definitions and methodologies.

Arguments in Opposition

There is no known opposition.

FISCAL COMMENTS

The State Treasurer’s Office reports costs of $600,000, ongoing, for CHFFA to develop and administer the DHLP (General Fund or special funds), based on a preliminary analysis.

According to HCAI, the Newsom administration intends to provide $150 million to implement the DHLP. HCAI estimates needing 5% of the funds appropriated to the grant program for administration and oversight of the program, including CHFFA’s administrative costs. HCAI states some costs will be ongoing to audit the additional hospital financial data (California Health Data and Planning Fund).

VOTES

ASM HEALTH: 15-0-0

YES: Wood, Waldron, Aguiar-Curry, Arambula, Boerner Horvath, Wendy Carrillo, Flora, Vince Fong, Maienschein, McCarty, Joe Patterson, Rodriguez, Santiago, Villapudua, Weber

ASM APPROPRIATIONS: 15-0-1

YES: Holden, Megan Dahle, Bryan, Calderon, Wendy Carrillo, Dixon, Mike Fong, Hart, Lowenthal, Mathis, Papan, Pellerin, Sanchez, Weber, Ortega

ABS, ABST OR NV: Robert Rivas

UPDATED

VERSION: April 24, 2023

CONSULTANT: Lara Flynn / HEALTH / (916) 319-2097 FN: 0000508

Date of Hearing: May 10, 2023

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

ABPCA Bill Id:AB 412

Author:(Soria) – As Amended Ver:April 24, 2023

Urgency: Yes State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill establishes, subject to an appropriation, the Distressed Hospital Loan Program (DHLP) to provide interest-free loans to not-for-profit hospitals and public hospitals in significant financial distress, and prevent the closure, or facilitate the reopening, of closed hospitals. The bill requires the Department of Health Care Access and Information (HCAI) to administer the DHLP and to enter into an interagency agreement with the California Health Facilities Financing Authority (CHFFA) to implement the DHLP. This bill is an urgency measure to provide immediate relief to financially distressed hospitals.

FISCAL EFFECT:

The State Treasurer’s Office reports costs of $600,000, ongoing, for CHFFA to develop and administer the DHLP (General Fund or special funds), based on a preliminary analysis.

According to HCAI, the Newsom administration intends to provide $150 million to implement the DHLP. HCAI estimates needing 5% of the funds appropriated to the grant program for administration and oversight of the program, including CHFFA’s administrative costs. HCAI states some costs will be ongoing to audit the additional hospital financial data (California Health Data and Planning Fund).

COMMENTS:

1. Purpose. According to the author:

Madera Community Hospital recently closed its doors - shutting down the only hospital for Madera County’s roughly 150,000 residents. Now, hardworking farmworkers and many other community members – one-fifth of whom live in poverty – must travel 20 miles or more to receive emergency care and other hospital services…Madera Community Hospital has been vital to protecting public health in the region and was the first to treat a COVID-19 patient in the Central Valley. Yet, without emergency financial assistance, the hospital was unfortunately forced to close – severely impacting local access to health care and displacing the medical workforce.

…When the pandemic arrived, hospitals took on a variety of new roles and many were pushed to the financial brink. In many cases, patient visits decreased outside of emergency situations, and hospitals were forced to stop elective procedures to avoid spreading COVID-19. These factors, coupled with supply chain shortages and inflation, dramatically increased operating costs. Now, hospital margins across the western U.S. have decreased 69% since 2019, with 2022 having been the worst year of that period.

California has made significant strides in recent years to ensure healthcare coverage is available to all residents, regardless of their residency status or income. We now must ensure healthcare facilities remain open to actually provide that lifesaving care.

1. Background.

Distressed Hospitals. According to the January 2023 Kaufman Hall National Hospital Flash Report (Flash Report), hospital margins ended 2022 in difficult shape. Approximately half of U.S. hospitals finished the year with a negative margin as growth in expenses outpaced revenue increases. The Flash Report notes that hospitals faced prolonged increases in labor expenses last year, driven in part by a competitive labor market, as well as reliance on more expensive contract labor to meet staffing demands. Increased lengths of stay also hurt hospital margins. The Flash Report also states that expense pressures are unlikely to recede in 2023. According the Center for Healthcare Quality and Payment Reform, six rural hospitals in California are at risk of closing. An April 6, 2023 CalMatters article reported several hospitals have attributed reductions in services and staff layoffs to finances.

Medi-Cal Payments to Hospitals. This bill proposes to use Medi-Cal reimbursements due to a hospital as security for the loan, not to exceed 20% of the hospital’s Medi-Cal payments until the loan amount has been satisfied. Medi-Cal has two methods for making payments to hospitals: fee-for-service and managed care. Hospital services for Medi-Cal beneficiaries not enrolled in a managed care health plan are paid for directly by the state. In 2012, the hospitals and the state agreed to a medical acuity-based payment much like the Medicare diagnosis-related group, or DRGs. The state has not increased payment rates in over a decade.

CHFFA. CHFFA, within the State Treasurer’s Office, provides financial assistance to public and non-profit hospitals through loans funded by the issuance of tax-exempt bonds. To obtain CHFFA financing, an institution must be a public hospital, a private non-profit corporation, or an association authorized by state law to provide or operate a health facility and undertake the financing or refinancing of a project. CHFFA requires borrowers to comply with its bond issuance guidelines per bond rating category and provide loan security provisions and bond covenants that correspond with its rating. Borrowers must transfer savings resulting from issuance of tax-exempt bonds to the consuming public via lower or contained costs for delivery of health services.

1. Related Legislation.
   1. AB 869 (Wood) requires the Small and Rural Hospital Program within HCAI to give first priority for planning grants to single- and two-story hospitals that meet specified criteria, and creates additional grant programs for rural hospitals and financially distressed health care district hospitals to come into compliance with 2030 seismic standards. AB 869 is on the suspense file in this committee.
   2. AB 1131 (Garcia) establishes the Hospitals First Revolving Fund, administered by HCAI, to offer grants and low-cost loans to hospitals in rural and medically underserved communities to prevent the closure of a hospital or facilitate the reopening of a closed hospital. AB 1131 is pending in this committee.
   3. SB 45 (Roth) establishes the California Acute Care Psychiatric Hospital Loan Fund in CHFFA to provide loans to qualifying county or city and county applicants for the purpose of building or renovating acute care psychiatric hospitals, psychiatric health facilities, or psychiatric units in general acute care hospitals. SB 45 is on the suspense file in Senate Appropriations Committee.
2. Prior Legislation. AB 2426 (Gipson), of the 2021-22 Legislative Session, would have required the Department of Health Care Services, in consultation with Martin Luther King, Jr. Community Hospital (MLKCH), to create a directed payment program in Medi-Cal managed care (MCMC) for outpatient hospital services to provide that total MCMC plan reimbursement received by MLKCH for those services is approximately equal to the hospital's costs for those services. AB 2426 was vetoed by Governor Newsom, who stated, in part: “…the bill imposes a reimbursement structure that conflicts with federal regulations, creating significant implementation challenges [and]… would require tens of millions of dollars to implement which were not included in the budget.”
   

Analysis Prepared by: Allegra Kim / APPR. / (916) 319-2081

Date of Hearing: April 18, 2023

ASSEMBLY COMMITTEE ON HEALTH

Jim Wood, Chair

ABPCA Bill Id:AB 412

Author:(Soria) – As Amended Ver:April 12, 2023

SUBJECT: Distressed Hospital Loan Program.

SUMMARY: Establishes the Distressed Hospital Loan Program (DHLP), until January 1, 2032, which will provide interest free cashflow loans to not-for-profit hospitals and public hospitals, as defined, and in significant financial distress, or to governmental entities representing a closed hospital. Requires the Department of Health Care Access and Information (HCAI) to administer the DHLP and to enter into an interagency agreement with the California Health Facilities Financing Authority (CHFFA) to implement the DHLP. Specifically, this bill:

1. Establishes the DHLP, until January 1, 2032, to provide interest free cashflow loans to not-for-profit hospitals and public hospitals, as defined, and in significant financial distress or to governmental entities representing a closed hospital, for purposes of preventing the closure of, or facilitating the reopening of, those hospitals.
   
2. Defines the following, for purposes of this bill:
   1. “Closed hospital” means a hospital that closed after January 1, 2022.
   2. “Integrated healthcare system” means a group of healthcare organizations, for example physician practices, hospitals, and skilled nursing facilities, that are jointly owned;
   3. “Not-for-profit hospital” means a general acute care hospital (GACH) that is a health facility having a duly constituted governing body with overall administrative and professional responsibility and an organized medical staff that provides 24-hour inpatient care, including the following basic services: medical, nursing, surgical, anesthesia, laboratory, radiology, pharmacy, and dietary services, that is organized as a not-for-profit entity.
   4. “Public Hospital” means a hospital that is licensed to a county, a city, a city and county, a local health care district, or a local health authority.
      
3. Requires HCAI to enter into an interagency agreement with CHFFA to implement the DHLP.
   
4. Requires HCAI, in collaboration with the California Department of Health Care Services (DHCS), the Department of Managed Health Care, and the California Department of Public Health, to develop a methodology to evaluate an at-risk hospital’s potential eligibility for state assistance from the DHLP.
   
5. Requires the methodology to consider factors, including but not limited to, whether the hospital is in financial distress, as solely determined by HCAI, whether the hospital is small, rural, a critical access hospital, a trauma center, or serving a rural catchment area, whether closure of the hospital would significantly impact access to services in the region, and whether the hospital is publicly owned. Requires the methodology to also be used for identification and ongoing monitoring of hospitals at-risk of financial distress.
   
6. Requires a hospital, prior to receiving state assistance from the DHLP, to submit a plan to CHFFA, which it must share with HCAI, with projections detailing the uses of the proposed loan and strategies proposed by the hospital’s governing body to regain financial viability and continue to operate.
   
7. Prohibits not-for-profit hospitals and public hospitals that belong to integrated healthcare systems, as defined, from being eligible for state assistance under the DHLP.
   
8. Requires HCAI, in consultation with CHFFA to determine the application process, underwriting review, and methodology for approval and distribution of the loans under DHLP.
   
9. Grants HCAI the authority to determine network adequacy and service provision requirements in approving, and for the duration of, loans to eligible hospitals.
   
10. Requires hospitals to begin making monthly repayments of the loan after the first 18 months and to discharge the loan within 72 months of the date of the loan.
    
11. Requires, to the extent permissible under federal rules, security for the loans to be Medi-Cal reimbursements due to the hospital from DHCS. Restricts HCAI or CHFFA’s recoupment of thes loans from exceeding 20% of the hospital’s respective Medi-Cal checkwrite payments until the loan amount has been satisfied.
    
12. Requires HCAI, in consultation with CHFFA, to determine the application process, underwriting review, and methodology for approval and distribution of the loans pursuant to this provision.
    
13. Requires HCAI in consultation with CHFFA, to create a loan forgiveness program application and approval process that includes, but is not limited to, eligibility criteria for an applicant for loan forgiveness, including which portion of a loan may be forgiven.
    
14. Requires HCAI to provide loan forgiveness to an applicant based upon criteria determined by the HCAI and subject to approval by HCAI and CHFFA. Requires HCAI to also establish the terms and conditions associated with accepting the loan forgiveness.
    
15. Establishes the Distressed Hospital Loan (DHL) Fund in the Treasury, to be administered by HCAI. Requires all moneys in the fund to be continuously appropriated, without regard to fiscal years, for HCAI and CHFFA to implement the provisions of this bill.
    
16. Requires CHFFA to make secured loans from the DHL Fund to a hospital for purposes of preventing the closure, or facilitating the reopening of the hospital.
    
17. Authorizes HCAI to allocate an amount not to exceed 5% of the total program funds to administer the DHLP, including, but not limited to, administrative costs to CHFFA. Requires any funds transferred to be available for encumbrance or expenditure until June 20, 2026.
    
18. Authorizes the Treasurer to invest moneys in the DHL Fund that are not required for its current needs in eligible securities as specified. Requires all interest or other increment resulting from the investment or deposit of moneys from the DHL Fund to be deposited in the DHL Fund.
    
19. Prohibits moneys in the DHL Fund from being subject to transfer to any other funds, except to the Surplus Money Investment Fund.
    
20. Authorizes HCAI and CHFFA to implement, interpret, or make specific the provisions of this bill, by means of information notices or other similar instructions, without taking any further regulatory action. Authorizes HCAI and CHFFA to enter into exclusive or nonexclusive contracts, or amend existing contracts, on a bid or negotiated basis. Exempts contracts entered into or amended pursuant to this provision from existing standards for the use of personal services contracts and from the review or approval of any division of the Department of General Services.
    
21. Requires the provisions of this bill to remain in effect only until January 1, 2032, and as of that date to be repealed.
    
22. Adds the following requirements to hospitals’ existing financial and utilization data that is reported to HCAI on a quarterly basis:
    1. Revenues attributable to commercial insurance coverage specific to the total amount of a hospitals inpatient gross revenues;
    2. Revenues attributable to commercial insurance coverage specific to the total number of inpatient days, outpatient visits, and discharges attributable to commercial insurance coverage; and,
    3. A balance sheet detailing the assets, liabilities, and net worth at the end of the quarter in the detail as specified by the department.
       
23. Requires HCAI to allow and provide for, in accordance with appropriate regulations, additions or deletions to the summary financial and utilization data to meet the purposes of this bill.
    
24. Authorizes HCAI to adopt regulations, including emergency regulations, necessary to implement this section.

EXISTING LAW:

1. Establishes HCAI in the California Health and Human Services Agency to expand equitable access to quality, affordable health care for all Californians through resilient facilities, actionable information,  and the health workforce each community needs. [Health and Safety Code (HSC) § 127000, et seq.]
2. Establishes CHFFA within the office of the State Treasurer to be the State's vehicle for providing financial assistance to public and non-profit health care providers through loans, grants, and tax-exempt bonds. [Government Code (GOV) § 15430 et seq.]
   
3. Defines “Health facility,” for purposes of CHFFA eligibility, to mean a facility, place, or building that is licensed, accredited, or certified and organized, maintained, and operated for the diagnosis, care, prevention, and treatment of human illness, or physical, mental, or developmental disability, including convalescence and rehabilitation and including care during and after pregnancy, or for any one or more of these purposes, including, but not limited to, a GACH that is a health facility having a duly constituted governing body with overall administrative and professional responsibility and an organized medical staff that provides 24-hour inpatient care, including the following basic services: medical, nursing, surgical, anesthesia, laboratory, radiology, pharmacy, and dietary services. [GOV § 15432]
   
4. Authorizes CHFFA to make secured or unsecured loans to, or purchase secured or unsecured loans of, any participating health institution in accordance with an agreement between CHFFA and the participating health institution to refinance indebtedness incurred by that participating health institution or a participating health institution that controls or manages, is controlled or managed by, is under common control or management with, or is affiliated with that participating health institution, in connection with projects undertaken or for health facilities acquired or for working capital. [GOV § 15432 (j)]
5. Authorizes CHFFA, if a participating health institution seeking financing for a project that does not meet the guidelines with respect to bond rating, to give special consideration, on a case-by-case basis, to financing the project if the participating health institution demonstrates to the satisfaction of CHFFA the financial feasibility of the project, and the performance of significant community service. [GOV § 15438.5]
   
6. Specifies, for or the purposes of 4) above, a participating health institution that performs a significant community service is one that contracts with Medi-Cal or that can demonstrate, with the burden of proof being on the participating health institution, that it has fulfilled at least two of the following criteria:
   
   1. On or before January 1, 1991, has established, and agrees to maintain, a 24-hour basic emergency medical service open to the public with a physician and surgeon on duty, or is a children’s hospital that jointly provides basic or comprehensive emergency services in conjunction with another licensed hospital. Prohibits this criterion from being utilized in a circumstance where a small and rural hospital has not established a 24-hour basic emergency medical service with a physician and surgeon on duty or will operate a designated trauma center on a continuing basis during the life of the revenue bonds issued by the authority;
   2. Has adopted, and agrees to maintain on a continuing basis during the life of the revenue bonds issued by CHFFA, a policy, approved and recorded by the facility’s board of directors, of treating all patients without regard to ability to pay, including, but not limited to, emergency room walk-in patients;
   3. Has provided and agrees to provide care, on a continuing basis during the life of the revenue bonds issued by the authority, to Medi-Cal and uninsured patients in an amount not less than 5% of the facility’s adjusted inpatient days as reported on an annual basis to HCAI; and/or,
   4. Has budgeted at least 5% of its net operating income to meeting the medical needs of uninsured patients and to providing other services, including, but not limited to, community education, primary care outreach in ambulatory settings, and unmet nonmedical needs, such as food, shelter, clothing, or transportation for vulnerable populations in the community, and agrees to continue that policy during the life of the revenue bonds issued by CHFFA. [Id.]
      
7. Establishes the Alfred E. Alquist Hospital Facilities Seismic Safety Act of 1983, to ensure that hospital buildings are designed and constructed to resist the forces generated by earthquakes and requires HCAI, formerly the Office of Statewide Health Planning and Development, to propose building standards for earthquake resistance and to provide independent review of the design and construction of hospital buildings. [HSC § 129675, et seq.]
   
8. Establishes timelines for hospital compliance with seismic safety standards, including a requirement that buildings posing a significant risk of collapse and a danger to the public (referred to as structural performance category 1 buildings) be rebuilt or retrofitted to be capable of withstanding an earthquake, or removed from acute care service, by January 1, 2008 (which has since been extended for various hospitals to various dates), and a requirement that hospital must also be capable of continued operation by January 1, 2030. [HSC § 130060, § 130065]
   
9. Establishes the Medi-Cal program, administered DHCS, under which qualified low-income individuals receive health care services. [Welfare and Institutions Code § 14000, et seq.]
   
10. Requires hospital to report the following summary financial and utilization data to HCAI within 45 days of the end of a calendar quarter. Authorizes adjusted reports reflecting changes as a result of audited financial statements to be filed within four months of the close of the hospital’s fiscal or calendar year. Requires the quarterly summary financial and utilization data to conform to the uniform description of accounts as contained in the Accounting and Reporting Manual for California Hospitals and to include all of the following:
    1. Number of licensed beds;
    2. Average number of available beds;
    3. Average number of staffed beds;
    4. Number of discharges;
    5. Number of inpatient days;
    6. Number of outpatient visits;
    7. Total operating expenses;
    8. Total inpatient gross revenues by payer, including Medicare, Medi-Cal, county indigent programs, other third parties, and other payers;
    9. Total outpatient gross revenues by payer, including Medicare, Medi-Cal, county indigent programs, other third parties, and other payers;
    10. Deductions from revenue in total and by component, including the following: Medicare contractual adjustments, Medi-Cal contractual adjustments, and county indigent program contractual adjustments, other contractual adjustments, bad debts, charity care, restricted donations and subsidies for indigents, support for clinical teaching, teaching allowances, and other deductions;
    11. Total capital expenditures;
    12. Total net fixed assets;
    13. Total number of inpatient days, outpatient visits, and discharges by payer, including Medicare, Medi-Cal, county indigent programs, other third parties, self-pay, charity, and other payers;
    14. Total net patient revenues by payer including Medicare, Medi-Cal, county indigent programs, other third parties, and other payers;
    15. Other operating revenue; and,
    16. Non-operating revenue net of non-operating expenses.

FISCAL EFFECT: Unknown. This bill has not yet been analyzed by a fiscal committee.

COMMENTS:

1. PURPOSE OF THIS BILL. According to the author, in the Central Valley district she represents, Madera Community Hospital recently closed its doors shutting down the only hospital for Madera County’s roughly 150,000 residents. The author states that now, hardworking farmworkers and many other community members, one-fifth of whom live in poverty, must travel 20 miles or more to receive emergency care and other hospital services. The author notes that Madera Community Hospital has been vital to protecting public health in the region and was the first to treat a COVID-19 patient in the Central Valley. Yet, without emergency financial assistance, the hospital was unfortunately forced to close, severely impacting local access to health care and displacing the medical workforce.

The author states that, unfortunately, Madera Community Hospital is not the only facility facing such challenges. When the pandemic arrived, hospitals took on a variety of new roles and many were pushed to the financial brink. In many cases, patient visits decreased outside of emergency situations, and hospitals were forced to stop elective procedures to avoid spreading COVID-19. These factors, coupled with supply chain shortages and inflation, dramatically increased operating costs. Now, hospital margins across the western U.S. have decreased 69% since 2019, with 2022 having been the worst year of that period.

The author contends that this bill will help Madera and other communities facing similar circumstances ensure that healthcare facilities remain open by establishing a new emergency loan program within the State Treasurer’s Office to assist hospitals that are at a high risk of closing or have recently closed and are attempting to re-open. The author concludes that California has made significant strides in recent years to ensure healthcare coverage is available to all residents, regardless of their residency status or income, and that we now must ensure healthcare facilities remain open to actually provide that lifesaving care.

1. BACKGROUND. According to the January 2023 Kaufman Hall National Hospital Flash Report (Flash Report), hospital margins ended 2022 in difficult shape. Despite modest margin improvements in November and December, suggesting a positive trend line heading into the new year, 2022 was the worst financial year since the start of the pandemic. Approximately half of U.S. hospitals finished the year with a negative margin as growth in expenses outpaced revenue increases. The Flash Report notes that hospitals faced prolonged increases in labor expenses last year driven in part by a competitive labor market, as well as hospitals needing to rely on more expensive contract labor to meet staffing demands. Increased lengths of stay due to a decline in discharges also negatively affected hospital margins. The Flash Report also states that expense pressures are unlikely to recede in 2023.
   1. CHFFA. This bill requires HCAI and CHFFA to develop a loan program for distressed hospitals. Currently CHFFA administers various loan programs for public and non-profit hospitals. In order to meet the requirements for CHFFA financing, an institution must be a public hospital, a private non-profit corporation, or an association authorized by the laws of California to provide or operate a health facility and undertake the financing or refinancing of a project. Generally, non-profit, licensed health facilities in the State of California including adult day health centers, community clinics, developmentally disabled centers, and drug and alcohol rehabilitation centers are eligible for financing. Applicants must be approved by a resolution of the CHFFA Members at a regularly scheduled public meeting. In addition to initial eligibility, CHFFA requires borrowers to comply with its Bond Issuance Guidelines per bond rating category and provide loan security provisions and bond covenants that correspond with its rating. Savings resulting from issuance of tax-exempt bonds for borrowers must be transferred to the consuming public via lower or contained costs for delivery of health services.
      
   2. California Hospital Association (CHA) Budget request. CHA is requesting a $1.5 billion relief package for hospitals. The CHA request notes that the state has not increased Medi-Cal rates paid to hospitals for over a decade and even prior to that, Medi-Cal base reimbursement did not cover the cost of providing care to this population. CHA states that California pays just 74 cents on the dollar to care for Medi-Cal patients. CHA notes that Medi-Cal enrollment has grown from 21% to nearly 40% of the population, and costs have spiked with a 16% increase in labor, a 41% increase in pharmaceutical costs, and a 19% jump in medical supplies. This cost growth coincides with the pandemic, which has led to a loss of more than $12 billion for hospitals. Funds are proposed to be disbursed based on each recipient hospital’s Medi-Cal utilization, stating that it targets funding to hospitals that provide a greater number of Medi-Cal services and will give relief to hospitals most impacted by the state’s systemic underfunding of Medi-Cal. However, no data has been provided to show the extent of financial need for each hospital in California, not the amount of COVID-19 relief funds received, or exactly how hospitals Quality Assurance Feed money is spent.
      
   3. Recent hospital closures. As the chart below illustrates, between 2006 and 2023, 10 hospitals in California have closed. However, not all closures were the result of financial problems, for example, Adventist Health Feather River closed in 2018 as a result of the Camp Fire.
      

d) Distressed hospitals. According the Center for Healthcare Quality and Payment Reform, six rural hospitals in California are at risk of closing, although the center does not release the names of at-risk hospitals. However, as reported in an April 6, 2023 CalMatters article, several hospitals have openly discussed their issues and attributed reductions in services to their finances. Hazel Hawkins, located in Hollister, and Mad River Community Hospital in Arcata have both suspended their home health services programs; Kaweah Health Medical Center in Visalia has laid off at least 130 employees; El Centro Regional Medical Center in Imperial County cut its maternity ward, forcing local families to travel about 25 minutes to the only other hospital in the county. CalMatters also reported that some hospitals face additional pressures. For example, Hazel Hawkins, a 25-bed hospital, posted earnings of $2.6 million in the fiscal year that ended in June of 2022, according to state financial documents. Then in July it learned that it was being overpaid by Medicare. The hospital must now repay more than $5 million to the federal government. Earlier this year, the hospital secured a $3 million state loan, and received an advancement in property tax dollars it receives from the county.

e) Medi-Cal payments to hospitals. Medi-Cal has two methods for making payments to hospitals: fee-for-service and managed care. Hospital services for Medi-Cal beneficiaries not enrolled in a managed care health plan are paid for directly by the state. Prior to 2013 payments were made on confidentially negotiated rates through a state agency known as the California Medical Assistance Commission (CMAC), which were increased annually, however they were not based on patient acuity. In 2012, CMAC was closed and the hospitals and the state agreed to a medical acuity-based payment much like the Medicare diagnosis-related group, or DRGs. The payments have not been increased in over a decade. Managed care plans are paid a flat per-member per-month fee, or capitated rate (in which a provider or group of providers receives a fixed amount per person or enrollee, regardless of the treatment required), by DHCS. Plans then negotiate payment rates with contracted providers. Some providers take full or partial risk in their contracts with health plans.

This bill proposes to use Medi-Cal reimbursements due to hospitals as the security for the cashflow loans, not to exceed 20% of the hospitals Medi-Cal payments until the loan amount has been satisfied.

1. RELATED LEGISLATION.
   1. AB 869 (Wood) requires the Small and Rural Hospital Program within HCAI to give first priority for planning grants to single- and two-story GACHs that meet specified criteria. Creates an additional grant program for rural hospitals with a seismic safety compliance assessment to apply for grants to come into compliance with 2030 seismic safety requirements. Establishes a similar 2030 seismic compliance grant program for financially distressed health care district hospitals. AB 869 is pending hearing in the Assembly Appropriations Committee.
   2. AB 1131 (Garcia) would establish the Hospitals First Revolving Fund, administered by the HCAI, to offer grants and low-cost loans to hospitals in rural and medically underserved communities to prevent the closure of a hospital or facilitate the reopening of a closed hospital. AB 1131 is pending in the Assembly Health Committee.
   3. SB 45 (Roth) establishes the California Acute Care Psychiatric Hospital Loan Fund within CHFFA and would continuously appropriate moneys in that fund to CHFFA to provide loans to qualifying county or city and county applicants for the purpose of building or renovating acute care psychiatric hospitals, psychiatric health facilities, or psychiatric units in GACHs, as defined. Requires CHFFA to develop an application for county or city and county applicants by January 1, 2025. SB 45 is currently on the Suspense File in the Senate Appropriations Committee.
2. PREVIOUS LEGISLATION. AB 2426 (Gipson) of 2022 would have required DHCS, in consultation with Martin Luther King, Jr. Community Hospital (MLKCH), to create a directed payment program in Medi-Cal managed care (MCMC) for outpatient hospital services to provide that total MCMC plan reimbursement received by MLKCH for those services is approximately equal to the hospital's costs for those services. Would have required, consistent with federal law, the capitation rates paid to MCMC plans to be determined to reflect the obligation to provide reimbursement approximately equal to the hospital's costs. AB 2426 was vetoed by Governor Newsom, who stated in part: “Although I appreciate the author's goal of supporting critical safety net care provided by this important hospital in his district, the bill imposes a reimbursement structure that conflicts with federal regulations, creating significant implementation challenges. Furthermore, this proposal would require tens of millions of dollars to implement which were not included in the budget.”
   
3. SUPPORT. CHA supports this bill and states that it addresses the immediate and short-term needs for a small group of hospitals that are on the edge of a financial cliff and facing the difficult choice of service reductions or bankruptcy. However, additional and rapid financial help is needed as dozens more hospitals are at risk of closure and all California hospitals are financially threatened. CHA states that is why the Legislature must also support an immediate lifeline to protect care for Medi-Cal patients throughout the state, not only in those communities where the loss of services is imminent.

CHA notes that Medi-Cal has grown to cover nearly 40% of all Californians, yet longstanding systemic underfunding of the program persists. Medi-Cal rates for hospital services have not increased in over a decade and California today pays just 74 cents for every dollar it costs to care for Medi-Cal patients. CHA contends that while reimbursement has remained stagnant, labor expenses have spiked 16% since 2019, pharmaceutical costs have grown by 41%, and the cost of medical supplies has jumped 19%. Hospitals whose patients rely on these programs for health coverage cannot sustain these daily shortfalls, especially having already depleted their reserves to cover $12 billion in COVID-19-driven losses, as well as surging labor, pharmaceutical, and operating expenses. CHA concludes that these government shortfalls do a disservice to people living in the state’s most-challenged communities, where access to care is already difficult and would be simply out of reach if this systemic problem is not addressed.

1. CONCERNS. Service Employees International Union California (SEIU) states that hospitals and their workforces are critical to the health of our communities, and that SEIU has historically supported efforts to address potential hospital closures, such as the creation of a new health care district in Watsonville. By creating a health care district, the public is able to see transparency in the hospital’s operations and finances and hold the hospital accountable for meeting the care needs of the community. Although the creation of a health care district may not be right for every community, providing loans or grants to a local hospital that is in financial distress should include similar principles of transparency, accountability, and oversight. SEIU states that as written, this bill would give additional responsibilities to HCAI, including:
   1. Defining when a hospital is considered to be “in financial distress;”
   2. Creating a methodology that will also be used for “identification and ongoing monitoring of hospitals at risk of financial distress;”
   3. Determining “network adequacy and service provision requirements” for the duration of any loans issued from the Fund; and,
   4. Determining criteria under which some or all of the loans would be forgiven – thereby converting some or all of the loans into grants.
      

SEIU states that these important responsibilities should come with appropriate guardrails placed by the legislature and opportunities for the public to engage in the process of developing these new definitions and methodologies. Ensuring that the bill includes appropriate public process and transparency is particularly important, as HCAI would not be required to issue regulations in order to create these new definitions and methodologies.

1. COMMITTEE AMENDMENTS.
   1. As currently drafted, this bill leaves the loan eligibility criteria solely to HCAIs’ discretion. The Committee may wish to amend this bill to more clearly delineate which hospitals have priority for loan eligibility.
   2. The Committee may wish to amend this bill to clarify that it applies to all public hospitals, with the exception of state hospitals.
   3. In order to clarify the definition of “integrated systems” the Committee may wish to delete the definition in the bill and replace it as follows: “Not-for-profit hospitals and public hospitals that belong to a group of hospitals that are jointly owned integrated healthcare systems shall be ineligible for state assistance under the program.”
      
   4. To add an Urgency clause, as approved by Rules Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

Association of California Healthcare Districts; the
Board of Supervisors County of Madera
California Chamber of Commerce
California Farm Bureau Federation
California Fresh Fruit Association
California Hospital Association
City of Chowchilla
City of Firebaugh
City of Kerman, CA
City of Madera
City of Merced
County of Fresno
Democrats of Merced County
District Hospital Leadership Forum
Madera Coalition for Community Justice
Madera County Farm Bureau
Madera; County of
Private Essential Access Community Hospitals
Rural County Representatives of California (RCRC)
State Center Community College District
United Ag

Opposition

None on file.

Analysis Prepared by: Lara Flynn / HEALTH / (916) 319-2097